by Cherry Reynard from interactive investor, 27th September 2023:
Small is becoming less beautiful in the investment trust world. Problems of wider discounts, poor liquidity and even – in some cases – weaker performance, have started to worry investors.
Another headwind is that wealth managers often won’t touch investment trusts with less than £250 million of assets. They usually need to buy in bulk for a range of wealthy clients, and consider it too risky to hold, say, 10% or 20% of a trust. There can be problems buying enough stock, and problems exiting if they are too dominant a part of the shareholder register. Smaller trusts create complexities. For the trusts themselves, it can deprive them of a natural buyer.
Chris Clothier, co-manager of Capital Gearing Trust, says: “In general, trusts below about £250 million in size are not a viable proposition, particularly because of the mergers that are taking place in the wealth management sector – such as Investec merging with Rathbones. Private client wealth managers are a major investor in the sector and their increasing size demands ever larger and more liquid trusts to invest in.”
However, James Carthew, head of investment company research at QuotedData, suggests that while the sector can’t always bow down to the needs of wealth managers, the lack of demand can hit smaller trusts.
He says: “The clamour for investment company mergers is mainly coming from the big wealth managers and the brokers that they trade with. Consolidation among the wealth managers is putting all but the very largest – multi-billion pound – trusts out of reach for them and, frankly, I’m not sure it is worth scrambling to meet their ever-greater demands for size.
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